Evolving solvency regimes create further opportunities for Asia insurers: Aon Benfield

The introduction of China’s second-generation solvency regime C-ROSS (China Risk Oriented Solvency System) will impact both the fast-growing insurance market itself and beyond, Aon Benfield, the global reinsurance intermediary and capital advisor of Aon plc, said in a report on Thursday.

Previously, solvency capital was only decided by an insurer’s size, but now it takes into consideration insurance/catastrophe, asset and credit risk, plus hard to quantify risks such as operational, reputational and liquidity risk, Aon Benfield said in its Asia Pacific Solvency Regulation report for 2015. The report outlines the latest non-life solvency requirements for 20 countries/regions in Asia, including Australia, China, India, Indonesia, Pakistan, the Philippines, Sri Lanka and Vietnam.

Aimed at multi-national insurers and reinsurers, including firms looking to expand overseas, the report provides an understanding and benchmarking of the existing methodologies adopted by regulators, Aon Benfield said in a statement on Thursday.

Regarding China specifically, the China Insurance Regulatory Commission (CIRC) published the final version of C-ROSS in mid-February. The minimum capital required for non-life insurers now consists of three parts: minimum capital requirements for quantifiable risks (insurance risk, market risk and credit risk); minimum capital requirements for control risk; and additional capital requirement for cyclical risk, insurers of importance to the domestic (financial) system and insurers of importance to the international (financial) system. “Detailed rules of the additional capital requirement will be issued by CIRC later,” the report said.

In addition to the C-ROSS regime, which Aon Benfield called “the most significant change since last year,” the report noted Asia Pacific is strengthening its solvency regulations. “Markets such as China, Hong Kong, and Sri Lanka are moving towards risk-based capital (RBC), while developed markets are bringing their existing RBC to a new level,” the statement said.

The report noted that the CIRC has also disclosed the roadmap for building China’s catastrophe insurance system. For example, by the end of 2017, the regulator expects to finish its legislation work, try to issue “Earthquake Catastrophe Insurance Rules,” and research on establishing a catastrophe insurance pool. From 2017 to 2020, CIRC expects to fully implement the catastrophe insurance system and gradually integrate it into the nation’s comprehensive system of preventing and mitigating hazards.

Sifang Zhang, head of Aon Benfield Analytics’ Rating Agency Advisory team for APAC, said in the statement that “this region presents many opportunities due to currently low insurance penetration rates, fast-growing economies, an active infrastructure building and the forthcoming ASEAN Economic Community. Regulatory regimes are evolving quickly and risk-based capital regimes are already implemented in half of the countries. The report’s standard structure will enable easy comparisons to be made when insurers are making strategic decisions.”